Big Oil Strikes It Rich With Royalties

Interior Dept.: $66B In Oil Revenue Tax Exempt Through 2011

(CBS/AP)  Despite record profits, oil and gas producers may avoid billions of dollars in royalty payments to the government because of a decade-old law designed to spur production when energy prices are low.

The Interior Department estimates that as much as $66 billion worth of oil and natural gas taken from the deep waters of the Gulf of Mexico between now and 2011 will be exempt from government royalty payments.

That could amount to the government losing an estimated $7 billion to $9.5 billion based on anticipated production and current price projections for oil and gas, according to an analysis in the department's five-year budget plan.

The analysis assumes oil prices will hover around $50 a barrel and natural gas in the $8 to $9 per thousand cubic feet range between now and 2012.

Johnnie Burton, head of the department's Minerals Management Service, said Tuesday the actual revenue losses would be subject to many variables, but that more than $7 billion was "in the range" of probability.

The Interior Department said the incentives worked, pushing oil production up nearly 400 percent in the Gulf over the past 10 years, CBS News correspondent Anthony Mason reports.

The industry windfall was first reported by The New York Times.

The disclosure prompted calls in Congress on Tuesday to curtail or end the royalty relief that lawmakers made available in 1995.

"The American people are getting stood up and hung out to dry by an administration that favors sweetheart deals with Big Oil," said Rep. Ed Markey, D-Mass., one of six Democrats who said they planned to introduce legislation to end the royalty relief.

Sen. John Kerry, D-Mass., said he planned to introduce a resolution putting the Senate on record against the royalty break. "No one in their right mind think oil companies turning record high profits and squeezing Americans at the pump should now get to keep $7 billion," Kerry said.

Although Kerry was among those who voted for the royalty relief in 1995, his spokeswoman said that the relief is no longer needed when oil prices are near $60 a barrel.

Oil cost an average of $18.43 a barrel in 1995, according to the Energy Department. At the time there was a widespread view that incentives were needed to spur production in the deep-water Gulf region.